Canada’s big-city mayors want action on affordable housing crisis
The mayors of Canada’s largest cities say there is a growing housing crisis across the country, with many people unable to buy homes because of record-high household debt, new economic realities and changing demographics.
The Big City Mayors’ Caucus met Thursday in Vancouver, ahead of the annual meeting of the Federation of Canadian Municipalities, emerging with an invitation for their provincial and federal counterparts to meet and address the problem.
“Housing affordability is putting home ownership outside of the reach of many Canadians, and we need to think hard about what that means in terms of what policies can we do to support housing affordability, how can we stimulate new rental housing, as well a what we do about existing social housing,” said Calgary Mayor Naheed Nenshi.
“We need to start working with the federal government and our provincial governments on a national view of housing.”
The average price of a new home more than doubled from 2001 to 2010, the mayors pointed out.
Just 10 per cent of new residential construction in the past 15 years has been dedicated rental housing, yet 32 per cent of Canadians live in rental units, according to the federation.
Saskatchewan needs 6,500 to 7,000 new housing starts a year to meet demand and attract workers, the group said, and Metro Vancouver needs an estimated 6,000.
An astonishing 42 per cent of Canadians under age 29 still lived with their parents in 2011, compared to 26 per cent in 1981, the federation said.
There is a crisis of homelessness, as well, said the federation, with 1.5 million families in need of housing and an estimated 300,000 in shelters and on the streets.
Calgary and Waterloo have more than 3,000 families on wait-lists for affordable housing, and Metro Vancouver has 4,100. In Ontario, more than 150,000 people are waiting, and in Ottawa the wait can be up to seven years on a list that has swelled to 9,000 families.
Diane Finley, the minister responsible for Canada Mortgage and Housing Corporation, was not available for comment.
Earlier this month, Finley spoke at the annual meeting of the Canadian Housing & Renewal Association in Ottawa, where she said her government has invested $15 billion in housing and programs to address homelessness since 2006.
“We also recognize that safe, affordable housing is important to Canadian families,” Finley told the group
She said the federal government’s Economic Action Plan 2013 extends the investment in affordable housing to 2019, with additional federal funding of $1.25 billion over five years.
But the big-city mayors fear that $1.7 billion in federal housing investments annually will disappear. Already, that budget will shrink by $500 million a year beginning next year, they said.
“That’s going to put enormous pressure on the provinces and, in Ontario’s case, the municipal sector because housing in a municipal responsibility in Ontario, whereas it’s provincially regulated in the rest of the country,” Ottawa Mayor Jim Watson said.
Like other infrastructure, the affordable and social housing that does exist is reaching the end of its shelf life, Watson said.
“A lot of these units are at the stage of 40 or 50 years old, and they’re showing their age,” he said, adding that Toronto alone has hundreds of uninhabitable rental units.
Diane MacKay, of the Conference Board of Canada, said the housing crisis that has been unfolding for years has all kinds of impacts, including on the ability to draw workers.
The problem is more prominent in Western Canada, including Saskatchewan, she said.
“Even housing for executives is at a state of crisis, because you cannot attract talent at that level unless you have good housing, located near good schools, with good access to services of all kinds including culture and health care and so on. It’s a problem at all levels of the economy.”
The solution requires more than government funding, she said.
“The governments should not be in the business of building housing. The governments should be in the business of setting policy,” she said.
“Businesses should be in the business of building houses, and how do we facilitate it in a way that makes it profitable to engage?”
The Federation of Canadian Municipalities’ annual convention begins Friday and continues to June 3.
Read more: http://www.theprovince.com
The alarming decline of housing affordability
The Globe and Mail
The question of whether Canada’s housing market is a bubble or not hinges on how affordable it is to buy a home.
Gulp. Rising home prices and mortgage rates suggest trouble ahead, but that’s only half the problem. Bubble or not, houses are being priced out of reach for first-time buyers and households with income levels at or even a little above average. It may be time to redefine what we mean when we say houses are affordable.
Affordability hardly seems a problem when you look at home sales. The Canadian Real Estate Association reported on Monday that sales were down 2.6 per cent in May on a year-over-year basis, but prices were up 3.7 per cent. The numbers were strong enough that the association increased its sales forecast for 2013.
And yet, there is clearly some stress on affordability, which is reported on in depth by Royal Bank of Canada’s economists every three months. As RBC points out in each report, lenders typically qualify borrowers by checking whether mortgage payments, property taxes and heating costs account for no more than 32 per cent of gross household income. In the first quarter of 2013, this package of housing costs consumed a low of 30.4 per cent of average household income in Edmonton for a detached bungalow and a high of 82.3 per cent in Vancouver. Nationally, housing costs ate up 42.5 per cent of the average household’s income.
Looking for a house in the city, Mr. and Ms. Average Canadian? Perhaps a condo is more realistic, or a nice rental. “Households in the middle of the income distribution would not meet the guidelines of 32 per cent for a bungalow,” said RBC senior economist Robert Hogue.
The condo market is comfortably affordable on a national basis, with 28.1 per cent of the average household’s income consumed by housing costs. But two-storey houses were at 48 per cent nationally, with Vancouver coming in at 87.2 per cent, Toronto at 62.7 per cent and Edmonton, the most affordable of the six cities measured by RBC, at 34.4 per cent.
Bungalows, the middle path between condos and two-storey homes, are above long-term average affordability levels, but apparently not critical. “We found that when [bungalow] affordability gets above 44.5 per cent, it’s usually followed by a housing price correction of 5 per cent or more,” RBC chief economist Craig Wright said.
Truth is, affordability hasn’t changed much at all in recent years. Individual cities like Vancouver and Toronto are well above their long-term averages, but those averages themselves are way above 32 per cent. In Toronto, for example, the average-priced bungalow has eaten up 48.7 per cent of gross household income on average since RBC started measuring affordability back in 1985; the comparable recent number is 53.8 per cent.
Affordability hasn’t worsened dramatically in recent years because low interest rates have offset rising house prices. More of the mortgage rate increases we saw last week would threaten this balance, and so would the price increases many cities saw in May. But let’s put that aside for the moment because the existing state of affordability is tenuous enough already.
RBC’s data show that to qualify to buy the average-priced two-storey home in Toronto and Vancouver in the first quarter, a couple would need gross annual household income of $132,100 and $156,200, respectively. Ottawa’s not far behind at $92,500, while the national number was $87,800.
A handy measuring stick for income levels is Statistics Canada’s annual income of Canadians report, which shows a median level of $84,410 for two-parent families with kids in 2010, the most recent year for which there’s data. Over all, the median level of household income was $64,900, which is well short of what RBC says is necessary to buy the average bungalow on a Canada-wide basis.
It’s not just households of average means or less who have affordability issues. Young adults just starting out in the work force are having trouble finding jobs with sufficient salary to pay back their student loans and move out of their parents’ home, never mind buy a house in a major city. Smaller communities are more affordable, but they’re not usually where the jobs are.
RBC’s affordability numbers look somewhat harsher than you’ll find in real life because they use posted five-year mortgage rates, not the much cheaper discounted rates that most people pay. On the other hand, RBC projects a down payment of 25 per cent, which is difficult to save in most bigger cities. The lower your down payment, the bigger your mortgage.
None of this changes the fact that at today’s price levels, houses are evolving into a luxury item in some cities. With the recent increases in both prices and mortgage rates, houses become even more out of reach. The answer to declining affordability just might be the big price decline everyone’s afraid of.
How affordable is housing?
Royal Bank of Canada’s housing affordability measure takes a quarterly look at what percentage of median pre-tax household income is needed to pay the cost of a mortgage on an average-priced detached bungalow, plus property taxes and utilities. Lenders deem a house to be affordable if the associated costs account for no more than 32 per cent of the borrower’s gross income. Here are affordability numbers from the first quarter of 2013.